The CFPB testified before the Senate Subcommittee on Financial Institutions and Consumer Protection last Wednesday, saying debt issued by financial institutions—excluding mortgages and auto loans—“no longer represents the largest focus of debt collection activity.”
Corey Stone, the assistant director of the CFPB’s Office of Deposits, Cash, Collections and Reporting Markets, said healthcare providers now represent the largest group of collection agencies customers, as well as agencies’ largest amount of recoveries in terms of dollars.
“As Senator Merkley pointed out in this Subcommittee’s hearing last December on credit reporting, medical debt is affecting a large number of Americans, including adding negative information to their credit reports and exerting a negative impact on their credit scores,” Stone said. “Third party collectors of medical debt are subject to the same federal statute as collectors of financial debt when it comes to protecting consumers, and we will be working with our partners at the FTC to better understand collection practices in this market and work to improve them.”
Student loan debt has also risen sharply in recent years. Nearly $100 billion in federal and private student loans are currently delinquent or in default.
“Both medical and student debt have unique characteristics,” Stone said. “And when borrowers are delinquent or in default, both types of debt present some unique challenges to both consumers and collectors. We will need to be sensitive to these challenges as we seek to improve practices and protections in the overall marketplace for collections.”
Stone also touched upon data integrity and record-keeping in the debt collection industry, saying that important debt information is often not passed along with the debt and that the task of addressing the problem “will not be easy.”
“When it comes to standards for the fundamental task of maintaining records and disclosing information, the devil is in the details. It means answering the question: which specific pieces of information about a debt need to be maintained, by whom, and disclosed when?” Stone said. “If we get this right, the result will be a more trustworthy collections system that is more likely to treat consumers with dignity and respect, while better meeting the needs of creditors.”
Additionally, Stone said that while the Fair Debt Collection Practices Act was written to protect consumers from abusive debt collection practices, the legislation was written before the introduction of technology like cell phones, text messaging, email and fax.
“These communication methods are being used today by some collectors to reach consumers in ways that can compromise both dignity and privacy,” Stone said. “We intend to engage with our colleagues at the FTC and the Federal Communications Commission, each of which have relevant and unique jurisdictions that pertain to these practices, to establish clearer guidelines for how collectors may use some of these new communication technologies to reach consumers who owe debts, while protecting consumers’ privacy and dignity.”